ECB Leaves Rates Unchanged; Market Wants More Stimulus
The European Central Bank left key interest rates unchanged Thursday as central bankers continue to assess the fallout from the Britain's June vote to leave the European Union.
"I think in general, the market is looking for more stimulus at some point in the future," said Brian Rehling, co-head of global fixed income at Wells Fargo Investment Institute. "There is some impact from the Brexit vote - exactly what that is, they're waiting for a little more data.'
The impact almost one month after Brexit seems to be muted.
"Following the UK referendum on EU membership, our assessment is that euro area financial markets have weathered the spike in uncertainty and volatility with encouraging resilience," ECB President Mario Draghi said during a press conference Thursday.
The ECB's main refinancing rate remains at 0% while its deposit rate stands at minus 0.4%. The central bank currently purchases 80 billion euros worth of bonds per month, in a program known as quantitative easing, that is set to run until September 2017.
While that program may be extended, reports suggest the central bank is running out of bonds to buy.
The quantitative easing program initially only included the purchase of government bonds, but when the monthly pace of asset purchases was raised to 80 billion euros from 60 billion in March, the ECB announced it would start to purchase corporate bonds, as well.
"We might see some modifications to their bond buying program in terms of what bonds they are allowed to buy," Rehling said, adding that as yields fall, there is a limit on the quantity of bonds the ECB can purchase.
The Bloomberg Investment Grade European Corporate Bond Index gained 1.6% over the past month. Bond prices and yields move in opposite directions.